News & analysis

Bitcoin is on a tear this week, having strengthened by almost 40% against the US dollar since Friday.

The currency is no stranger to explosive periods of price increases – but the latest appreciation is noteworthy.

It has happened at a time when risky assets have been under pressure, while gold, a traditional alternative to fiat currencies that is often viewed as an analogy for cryptocurrencies, has performed well.

Furthermore, unlike previous periods of rapid gains for Bitcoin, alternative coins such as Litecoin, Ethererum and Ripple lagged behind Bitcoin appreciation, as have Bitcoin forks such as Bitcoin Cash and Bitcoin Satoshi Vision.

Chart: Bitcoin leads alternatives.

The concentration in Bitcoin, the oldest and best known cryptocurrency, is something Bitcoin bulls might interpret as evidence of a growing consensus on the token’s dominance over smaller alternatives as a store of value and medium of exchange.

Another driver of Bitcoin’s outperformance might be larger, possibly institutional investors having a greater impact on price action.

Such actors may be less willing to participate in cryptocurrencies with smaller market capitalisation and lower hash rates, and therefore less resilience to “51%” attacks.

How far the latest Bitcoin explosion can extend is anyone’s guess, as the cryptocurrency is devoid of the usual fundamentals that drive currencies, such as yield, political risk, and economic growth.

In the long run, user uptake and demand is the only driver of bitcoin.

It’s unclear if the latest move represents an increase in long-term believers, or another speculative expansion of the sort seen in late 2017.